Some of you might be wondering, an October 16th deadline, but isn’t Tax Day April 15? You would be correct. The official day for filing and paying your taxes is April 15, although that changes a bit from year to year depending on the day of the week on which it falls. For example, Tax Day for 2017 was April 18.
However, the IRS offers a 6-month extension to file taxes for those who apply. It is easy to get this extension, which gives you until October 15 to file your return, which again might be a slightly different day depending on the year. For 2017, this due date was October 16.
What Happens If You Miss the Deadline?
So, what happens if you miss this deadline? The same thing that happens if you missed the April 15 (or April 18, 2017) deadline and did not file an extension: you start to accrue penalty fees and interest on the tax you owe:
- Late filing penalty of 5 percent of the unpaid tax per month (not to exceed 25 percent)
- Late payment penalty of 0.5 percent of the unpaid taxes per month (up to 25 percent)
- Late to file and late to pay penalty that totals 5 percent of the unpaid taxes per month (maximum 47.5 percent of your tax)
- Interest of 3 percent plus the federal short term rate, compounded daily
A major difference between missing the April deadline and the October deadline is that for most people, the extension for filing did not include an extension to pay. That means your tax payment was due back in April, so you might already have accrued some penalty fees and interest, increasing your tax debt. Hopefully, you paid at least 90 percent of your taxes in April to avoid paying any additional penalty fees.
What Do You Do?
The big question is, what do you do once you realize you have missed the tax deadline? The easy answer: don’t panic, and file your return right away.
Here are the steps to take to reduce the impact on you:
1. File the return, even if you cannot pay
As stated, the first thing you want to do once you realize you missed your tax deadline is to file the return as soon as possible. The sooner you file, the fewer penalty and interest fees you have to pay. This can be a substantial amount of money saved. For example, if you owe $10,000 in taxes and you are late by a month or less, you might have to pay as much as $500 in penalties alone, plus an additional $300 or more in interest. That is a lot of money, but if you let it continue for five months, it becomes $2,500 in penalty fees and $1,500 for a total of $4,000. That is $3,200 more than you owe just because you waited an extra four months to handle it.
What happens if you go to file your tax return and find out that you owe more money than you can afford to pay? Perhaps you did not know you had to pay in April when you applied for the extension, or you miscalculated the number, and now you have forgotten to file in October as well. Again, make sure to file the return. The above calculations were based on the failure to file penalty of 5 percent of the tax, which is the same for failure to file and failure to pay. However, if you have filed but not paid, the penalty fees are much less. Rather than $500 per month, it becomes just $50 per month! The interest remains the same, but you still have the opportunity to save a lot of money.
For example, in the above scenario, the person who owed $10,000 waited to file and pay for 5 months, accruing a total of $4,000 in penalty fees and interest. If that person were to file, but not pay, for the same 5 months, their penalty fees and interest would total $1750. That is still a savings of over $2,000, even though the person waited to pay the tax.
2. Pay as much of your tax as possible
The next step to take if you have missed the October deadline, or any tax deadline, is to go ahead and pay what you can. As stated, hopefully, you paid at least 90 percent of your estimated taxes in April to avoid the additional penalties and interest. Maybe you applied for and received an extension to pay as well as your extension to file, so you do not have to worry about the penalty fees. Or you miscalculated your estimated taxes back in April and now you find that you owe more than you thought. Maybe you struggle to pay the last 10 percent of your estimated taxes that you did not pay back in April.
No matter the case, you want to go ahead and pay what you can right now. This reduces the amount of penalty and interest that accrues on your tax debt.
3. Apply for a tax relief program if applicable
If you cannot pay all of the tax you owed, penalty fees and interest included, at any time, then you should consider applying for one of the tax relief programs:
- Installment Agreement
- Penalty Abatement
- Innocent Spouse Relief
- Offer in Compromise
For most people, the easiest option is an Installment Agreement. Through this program, you pay a monthly fee over a period of time, which might be up to five years, to pay off your debt. This lowers your penalty fees to 0.25 percent of the tax, and you still have to pay interest. You can also apply for Penalty Abatement. If this is your first time missing your tax deadline, or if you have a really good reason for missing the deadline, such as a death of a close relative or a natural disaster affecting your home or business, then you have a good chance of successfully getting your penalty fees removed. This can make a big difference, as seen from our above examples. If the tax debt is solely the responsibility of your spouse — and you had no knowledge of it– you might be eligible for Innocent Spouse Relief. If you have an extreme financial hardship, you might qualify for an Offer in Compromise.
If you have missed your October — or April — deadline of this year or any year, then contact the tax professionals at Fidelity Tax Relief by calling 877-372-2520. We will review your situation and discuss the best plan of action to reduce the consequences. Remember, don’t panic! You have courses of action that you can take.